Home not delivered in 3 years after loan? You will now lose out on tax breaks

Of the nine lakh homes — across the country — delayed by builders, 70 per cent or around 6.3 lakh have been funded through loans.

NEW DELHI: Despite an increase in the interest exemption limit on residential loans in the budget, a little-known provision in the Income Tax Act could mar the calculations of lakhs of buyers whose homes won't be delivered by their builders on time.

The I-T Act says if a house to be used by the buyer is not handed over the by the builder "within three years from the end of the financial year in which capital was borrowed", the exemption on the interest amount will only be Rs 30,000 and not Rs 2 lakh, raised from Rs 1.5 lakh in the budget.

Of the nine lakh homes — across the country — delayed by builders, 70 per cent or around 6.3 lakh have been funded through loans, according to property research firm Liases Foras. Mortgage-based tax breaks figure prominently in most calculations by middle class home buyers, who factor in the exemption to arrive at how much will their net outgo on a home loan will be every year, point out tax planners.

Telecom pr ofessional Vikram Bishnoi, for instance, bought an apartment in Gurgaon in 2010 that should have been ready by the end of the next year but hasn't been delivered yet. As possession has been delayed by the builder, Bishnoi said he won't be able to claim full exemption on the interest component of his home loan.

On his Rs 47 lakh loan and based on the new exemption limit of Rs 2 lakh, his loss because of the delay will be around Rs 50,000 every year through the loan tenure of 20 years. This is unfair to home buyers, said a tax expert.

"If the government's intention is to give a benefit to people who have taken a home loan for buying a new house, why penalize them for a delay that they do not have a control middleover," said Sonu Iyer, partner, tax and regulatory services at consultancy firm EY.

The act should be amended as people could conceal information either deliberately or by mistake, said Anshuman Magazine, managing director of property consultancy firm CBRE South Asia. The assessing officer could deny the exemption if the return comes under scrutiny, said a senior official at the income tax department.

"This could be a big setback for the person as it could be a substantial liability," he said, asking not to be named Most people buying homes with loans are unaware of the provision and claim exemption based on the highest limit prescribed by the government, which was Rs 1.5 lakh until the last financial year. This could be risky affair, said Pankaaj Maalde, head, financial planning, ApnaPaisa. com.